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Banking 101 -

A guide to traditional investment strategies

When looking to start investing to grow your wealth, you will soon discover that there are many different investment strategies that you can use, each with their own set of pros and cons. If you are finding it difficult to know which one is right for you and your investment objectives, this basic starter guide can help.

Published

10th November 2021

Author

Gabriella Macari

Category

Choosing the best investment strategy

When trying to decide what is the best investment strategy for your investment objectives there are several factors to consider, such as how much time you would like to spend managing your investments, your views on costs and charges and whether you have any strong views or conviction on certain markets over others. It is common for an investor’s strategy to change over time as their circumstances and objectives change throughout their lifetime.

Traditional investment strategies

There is a vast number of ways to approach investing and building an investment strategy and as such, we cannot cover them all here. Instead, we have provided a brief introduction to some of the key themes or considerations.

What is active vs passive investing?

Simply put, passive investment instruments typically include tracker-funds or exchange traded funds which are designed to mimic the returns of a certain index or market (for example, the FTSE 100). Conversely, an Active fund will usually have a fund manager or management team who are aiming to outperform within a given market through stock selection and style bias.

The Passive versus Active debate has been ongoing for many years and is a great place to start in determining the best investment strategy and style for you and your objectives.

Benefits of active vs passive investing

The advantage of passive investments is that they are typically low cost, with some passive exchange traded funds (ETFs)charging less than 0.1% for their ongoing charges. Many investors argue that given the difficulty for active managers to consistently outperform, it is better to save on fund charges and just ‘buy the index’ via a passive investment.

Conversely, many investors choose to employ actively managed funds in their portfolios as they believe that there is value in the expertise of the fund manager. Whilst actively managed funds do typically have higher charges, there is a possibility of the fund outperforming the market and the benchmark if the manager is successful (I.e., If they make the right calls in terms of their stock selection or sector allocation).

It can be argued that whilst with a passive fund, you are almost guaranteed not to underperform relative to the index, you are also guaranteed not to outperform the index. If you are looking to outperform, you will need an active strategy.

In practice, you may decide to use a combination of actively managed and passively managed investment strategies within your portfolio. Using the US Stock Markets as an example, you may choose to use a low-cost ETF to gain exposure to the S&P 500 index – as it is difficult to outperform this index through active management – and then use an actively managed fund to gain exposure to a smaller sector of the market where the manager can add value (e.g., specialised technology managers or smaller-companies funds).

Still not sure where to start?

Speak to us to discuss your financial goals or find out more about how the Investment Management team at Arbuthnot Latham can help you.

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Author -

Gabriella Macari

Gabriella Macari

Senior Investment Manager

Gabriella has eight years’ investment management experience. As well as working with clients, she sits on our Investment Committee and leads our research work on commercial property. Gabriella holds the Chartered Wealth Manager qualification and featured in the Citywire 2021 Top 30 under 30 shortlist.